Switzerland: GDP growth edges up in Q2 but undershoots market expectations
September 5, 2017
Switzerland’s economy recorded a slight improvement in Q2: GDP growth edged up to 0.3% in quarter-on-quarter, seasonally-adjusted terms, over Q1’s revised 0.1% increase (previously reported: +0.3% quarter-on-quarter). The result undershot market expectations of a 0.5% increase.
According to the State Secretariat for Economic Affairs (SECO), the upturn was underpinned by a faster pace of expansion in the hotel and catering industry, along with a return to stronger dynamics in the financial sector. Moreover, the manufacturing sector continued to perform above the historical average. In contrast, a contraction in public administration and the healthcare sector, combined with stagnant business services, dragged on the quarter’s growth.
Looking at a breakdown of GDP by expenditure shows that growth improved on the back of domestic demand. Private consumption expanded 0.2% over the previous quarter, up from Q1’s 0.1% qoq rise—led by higher spending on healthcare, housing and energy, and restaurants and hotels. Government consumption also accelerated modestly, rising 0.3% compared to Q1’s 0.2% increase. However, growth in investment slowed markedly to 0.5% in Q2 from 1.0% in Q1.
The external sector performed poorly in Q2: Growth in exports of goods, omitting non-monetary gold and valuables, plunged to a meagre 0.5% qoq rise from a solid 5.7% qoq increase in Q1, and exports of services contracted 0.3%, contrasting Q1’s 9.3% upsurge. The downturn in exports is largely due to the overvaluation of the franc, which appreciated against the euro in Q2. Meanwhile, imports, excluding non-monetary gold and valuables, surged in Q2, growing 5.5% and contrasting a 0.8% fall in Q1.
Despite an improvement in quarter-on-quarter, seasonally-adjusted growth, GDP growth in annual terms failed to improve, dropping to 0.3% in Q2 from 0.6% in Q1, the worst result since Q4 2009. However, given the recent weakening in the franc and resilient growth in the Euro area, prospects for stronger export performance are looking up and should help to jump-start higher growth in the economy going forward.
Author: Nihad Ahmed, Economist